Reserve Bank of Australia (RBA) governor Philip Lowe says vaccination is the key to mitigating ongoing economic damage.

Dr Lowe says continued lockdowns in major cities will affect the national economy significantly in coming months, with economic activity almost certain to contract. 

That contraction is likely to occur in the third quarter, but could continue for six months in a row. Even so, he says he is optimistic about “next year”. 

“I've had my first shot of AstraZeneca, I'm getting my second one in two week's time,” he told a parliamentary committee in Canberra on Friday.

Dr Lowe was asked if he was concerned about higher inflation occurring in Australia, as the US faces following a series of large fiscal stimulus packages.

“Not in Australia,” he said.

“In the US you could debate it either way, but I would observe that in the past month inflation concerns in the US have started to recede a bit.

“In Australia … the fact that wages growth is likely to remain below 3 per cent for the next couple of years means it's very difficult for me to see us having an inflation problem.”

Dr Lowe predicted that the prices of specific commodities will fluctuate due to disruption or shortage in a global supply chain, but it will not be enough to spark inflation nationally.

“Ultimately, here in Australia, it comes down to what's happening in the labour market,” he said.

“With wage growth of 2-point something we're not going to have an inflation problem.”